In a series of articles, I’ve made some pessimistic comments about the likelihood of these startups transforming the freight industry. In one article I said, “I don’t doubt that the freight industry needs better technology, or that the Uber and Airbnb models can apply to freight. I just doubt that the startups are necessarily the best companies to capitalize on these opportunities.”

Part of the reason for my pessimism was that in talking to the startups, I was not hearing of any solutions that I felt had a sufficiently strong value proposition for both shippers and carriers. In particular, if a marketplace could not provide an almost instant quote, I was just not sure how much time they were saving shippers.

But providing instant quotes and commitments is much more difficult for freight moves than what Uber does with their ride hailing service. There are more parties to the transaction. For example, in truck moves you would have the shipper, truck dispatcher, driver, and dock managers at the pickup and delivery location potentially all playing a role. There are more constraints and shipper requirements in truck moves: what type of truck is needed? Does the carrier have sufficient insurance? Does the carrier and their drivers have a good safety record? What is required when a truck arrives at its destination?

But recently I talked to the founders of another startup called Loadsmart whose curation policies resonated with me. I talked to the Chief Product Office, Felipe Capella, and the CEO, Ricardo Salgado. The Loadsmart marketplace is focused on U.S. truckload (TL) demand/supply matching.

At the Loadsmart site shippers get instant pricing. And the pricing is guaranteed. If the Loadsmart site quotes a price of $500 and it ends up costing $550, they eat the $50 loss. And this is not a bureaucratic rebate process because Loadsmart takes the money from the shipper and pays the carriers; so the shipper would never even know that Loadsmart took a loss on any given move.

How can Loadsmart guaranty a price so quickly given the complexities of TL moves?

According to Mr. Salgado, “If a shipper likes the price they are quoted on a particular lane, they can book.” Only after they have booked, does the site ask more detailed questions such as exact address to ship to, warehouse contact information, special requirements, and so forth. Then they use those parameters, along with what they know about carriers preferred zones of operation, and APIs that allow them to update carriers’ CSA safety scores and insurance information on an ongoing basis, to tender to the appropriate carrier in their provider base.

But how do they know that they can make money on the price they are quoting shippers?

They take a Big Data analysis and machine learning approach to this. They have data on historical and recent pricing by lane. Their algorithm analyzes things like the volume of traffic moving one direction on a lane full, and the other direction empty; and real time data on the location of on-boarded carriers.

According to Mr. Salgado, “80 percent of the time our algorithm gives shippers a price; 20 percent of time we can’t commit to a rate, but we can tell the shipper ‘we think the price will be about this much, do you want us to find a truck for you?’” In time, as they accumulate more data, and the solution uses machine learning to get smarter, they will be able to provide quotes on all US lanes.

Of course price is not the only thing that matters to shippers. Service matters too. Loadsmart is using a rating tool similar to what Uber and Airbnb use. “If a carrier commits to a pickup, and then cancels, they get a bad rating, Mr. Salgado said. “If they do this three times, we unplug them.”

And like Uber, ratings happen not just for the providers of the service but the consumers as well. “Today we fired a client,” Mr. Salgado said, “a shipper. They weren’t treating our carriers with sufficient respect.”

And like Uber, drivers download their Loadsmart smartphone app from an app store that provides drivers with instructions concerning the load, and allows shippers to track the move. But just knowing where a truck is, does not always tell you if it will arrive on time. They are currently involved in research using their data to improve their event management capabilities.

The company is growing fast, “50 percent month over month since we introduced instant pricing” according to Mr. Salgado. Further, they are about to close on a second round of venture capital to continue to fund their growth.

But, of course, there is no guaranty they will win in the market.

Mr. Capella explained this very nicely. “You have to understand how start-up funding works. In order to justify a sizable investment, companies promise a new and better technology-driven product and an aggressive growth rate in order to justify an ever higher valuation. But what happens when companies overestimate the power of their technology and underestimate the market dynamics, all while under pressure by unrealistic burn rates? They face two options: one, fail; or two focus on growth-at-all-costs in order to justify the next funding round. When (freight marketplace) companies survive … by focusing on growth, they end up becoming what they had promised to disrupt: a traditional freight broker with two thirds of their personnel composed of a sales force and an engineering team purely focused on maintaining the system with no bandwidth to work on innovation.” The founders made it clear that this is not the path they want to take. They want to use transformative technology to automate processes, not to introduce incremental changes.

There is a second limit on growth. When it comes to big shippers, a great majority of the moves they make will be based on long term carrier contracts with big carriers. Most of Loadsmart’s carriers are rather small to medium size, and most of the moves are spot market transactions.

Nevertheless, Loadsmart is the first of the freight marketplaces I have talked to whose business model seems to me to provide enough of a win/win between shippers and carriers where I can envision them becoming a disruptor in the freight market.

In short, they may be one startup poised to compete with Uber in the long haul freight market.

Comments

We are very excited Steve, and we do believe an instant quoting and booking experience is essential. We have just launched our new Quote & Book Truckload API, which will allow every software and website to leverage our technology to provide instant quote and book for truckloads without leaving their platforms. For example, companies using an internal management software will be able to book a truckload with two mouse clicks: one for the quote and the following for booking. All the necessary information to move the load will be transmitted from the software to Loadsmart electronically and automatically, avoiding any need for manual data entries.